5 reasons 2019 offers opportunity for growth investors
Recent market turmoil may be pointing to a less-certain 2019 economic outlook. Macroeconomic indicators are slowing somewhat and monetary policy could be difficult to forecast. But as active growth managers, we’re undaunted and see plenty of opportunity for growth investors ahead. Here’s our take.
- Growth stocks tend to not need economic growth to sustain their profits. This is especially true for proven, credible innovators that have years of runway for their products to grow. These are companies whose success or failure is largely self-contained and not dependent on external economic or market cycles. For example, biotech firms that are able to launch proven therapies operate on their own timelines—in coordination, of course, with the FDA. Their success is not dependent on a roaring economy.
- Many growth companies have business models that are well-insulated against an economic slowdown. These are companies with low debt, experienced management, a wide competitive moat and reasonable labor costs. As their growth continues, they may also become attractive acquisition targets, presenting additional opportunity for investors.
- We remain excited about Technology, specifically Software as a Service (SaaS), and Health Care, mostly biotech. We believe these sectors will benefit from innovators willing and able to spend substantially on both R&D and efficiencies to create value for their own customers’ growth. For example, SaaS companies are becoming increasingly essential to virtually any company that needs data-mining expertise to understand their customers’ preferences and spending habits in order to garner more revenue per customer. Likewise, as traditional pharmaceutical companies are being targeted by legislators on their pricing, they are looking to biotech firms for product innovations to help compensate for that pushback.
- Overcorrecting has created opportunity. In light of the recent pullback, we have seen excellent companies fully capable of growing profits and market share being disproportionately punished. We are taking full advantage of these pullbacks to pursue new names or add to positions.
- We expect another solid year for IPOs. Last year’s initial public offering market was robust, with 191 IPOs priced—up from 161 in 2017. Despite the concern over slowing economic growth, our research indicates that numerous highly-valued offerings will be coming to market in 2019. For active investors, IPOs represent excellent long-term growth opportunities.